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10 Compelling Reasons Not to Downsize


Almost daily, newspapers, business magazines, radio and television carry reports of corporations, large and small, that are downsizing. Their attention is chiefly focused on the impact to the employees, as they are the ones most acutely experiencing the immediate effects. But what are the effects on the companies? Downsizing, rightsizing or any of the number of synonyms for radically cutting expenses and employees, may provide a decrease in operating expenses in the near term, but how will they impact the longer term future?

In my experience over several decades of business cycles, I have witnessed a succession of economic contractions and expansions and although at times the outlook has appeared bleak, in fact, far bleaker then our present circumstances, every decline has been followed by a subsequent period of growth. It was not that long ago that we awoke to "Black Friday" when the stock market appeared to teeter on the brink of a cataclysmic collapse. What followed however, was the beginning of what proved to be one of the longest lived economic booms in memory. The lesson here is that there will be a new economic tomorrow and we appear presently to be in the beginning stages of a new economic growth period.

Therefore, it is with eyes wide open that business leaders need to carefully consider the long range effects their present cost cutting actions will have on their organizations. This is especially true as the nature of those cuts, especially where they concern personnel, are fundamentally different today from what they were in the past. Circa 1950's, 60's, 70's 80's and even much of the 90's, downturns in employment for the most part meant layoffs. Certainly, there were specific industries where structural decline resulted in large scale permanent job losses. However, in general, most cutbacks precipitated layoffs vs. permanent terminations. Not so today. The new order is that of permanent severance. For many the proverbial "pink slip" has turned to bright red.

Moreover, the level of employee being severed has also changed dramatically. In previous decades, the cuts were heavily weighted toward production personnel and were therefore, first line, blue collar worker oriented. Today, with our heavy reliance upon technology to drive the economic engine, the cutbacks in both the manufacturing and service sectors are skewed toward white collar workers. Additionally, more senior workers in their 40's, 50's and 60's have borne the brunt of the reductions more heavily than ever before, as their higher cost compensation and benefit packages are targeted for maximum near term bottom-line savings.

Conjointly these changes have set in motion what could become a veritable time-bomb for companies that decide to pursue cost reductions through massive staff cuts. The negative consequences will likely include:

1. Lack of a recallable employee pool. Historically, layoffs inherently communicated at a minimum the possibility, if not the probability, of being recalled by the employer when economic conditions improved. Many furloughed employees expected to eventually return to their employers and, reacted to the layoff accordingly by taking interim and part-time jobs. Today many severed employees are not only informed that their release is final, they are provided outplacement services funded by their former employers. Thus, the employers themselves are ensuring that these people will, indeed, not remain available to them. Many of the more senior employees, finding new employment at their current compensation levels difficult if not impossible and having personal savings at their disposal, are choosing to become entrepreneurs, thereby, forever removing them from the available labor pool. We entered 2001 experiencing labor shortages across most industries, which were particularly acute for high skill and technology workers. At the moment this scarcity may have temporarily abated, but its root causes remain and the scenario is certain to revisit us as soon as the economy enters the next upturn.

2. Poor morale & lack of trust among younger employees as terminations increasingly target older employees. Much has been exposited recently in the press about the disturbing loss of employee loyalty. Terminating large numbers of older, more senior and experienced employees who have faithfully served the corporation for many years, has a profound long term effect on younger, newer employees. Place yourself in their shoes for a moment. They have already been indoctrinated by friends, relatives, neighbors and the media that business, especially big business, is not to be trusted. Now they see their co-workers, supervisors, and mentors being fired because "cost cuts need to be made and these individuals represent higher per capita costs to the organization." The message is clear and they understand. The reward for loyalty is to be axed when you are over fifty and unlikely to find another comparable position. They may not bolt today, due to a tightening job market, but they will remember and when the economy improves they will seek a future where they feel more secure.

3. Loss of knowledge and experience base. This is a frequently overlooked aspect of the cost of losing long term employees. Many companies and even industries are currently developing knowledge bases in order to capture and access organizational knowledge resources. Yet, no matter how effective these databases are, and they can be extremely beneficial, they will never be a substitute for the knowledge, experience and wisdom that rests in the veterans of the organization. Although this is true in terms of deductive knowledge, it is even more important regarding the organization's continuity and history. People need to feel a sense of belonging to more than just the present, the "now" of an organization. They also need a sense of past and future. Without this, there are no ties, no traditions, no continuity and often no shared ethics and values.

4. Loss of corporate culture and available mentors for existing and new employees. This loss of continuity is also reflected in dispossession of the corporate culture. I am a great believer in change vs. the status quo. However, there are some things that should not change. "In this company we do thus and so, because we believe it to be fundamentally right." Every organization needs to have incontrovertible statements that transcend the fluctuating business climate and current trends. These values can and should be committed to pen and paper, but they are not passed on in this manner, at least not primarily. Rather, they are taught and lived and mentored from one person to the next. The fewer seasoned people the company has to pass these on, the less they will be able to maintain the soul of the organization.

5. Loss of established customer service and customer contact points. It happens to all of us. One day you call your favorite supplier or vendor and ask for good ole' Joe who you have done business with for years and are shocked to learn he is no longer there. "Why? Has he died or contracted cancer?" you ask. "No," is the response. We have had a major reduction in staff due to the economy. In silence you ponder: "If after all these years Joe is gone, who's left? Will they even be in business tomorrow? Maybe, I should begin looking around for another supplier." No one is irreplaceable. However, long term customer and supplier/vendor relationships are invaluable; they also say something about the reliability and stability of your organization. Although the organization's investment in these relationships does not show as a line item on the asset portion of your balance sheet, do not underestimate their value, especially in a day when the global search for new suppliers and vendors is made instantaneous by the internet. Without relationships, price rules and the only price that matters today is the lowest one. Years spent in commodity businesses taught me this principle all too well.

6. Employees may be needed again before termination savings are fully realized. If the economy does begin rebounding by mid 2002, then many of the anticipated savings of reducing the workforce will have not yet been fully realized before companies will need to begin replacing the terminated workers. The expense of replacement includes both the termination costs as well as the costs of training and integrating the new hires. Thus, in cases where terminations include substantial severance and outplacement costs, these plus the training and initial inefficiency costs of the new hires frequently equal one to several years of the terminated workers' cost to the organization.

7. Possible need to bring employees back as independent contractors at higher total cost. The shrinking labor pool together with the fact that a high percentage of the middle-aged and older terminated employees are either beginning their own businesses or opting for early retirement will mean that many of those who remain and are willing to return to former employers will want to do so under their own conditions. A large number of these may choose to do so as independent contractors preferring to gain a greater degree of control over their own lives. Many companies initially prefer this approach believing that they may only require the services of the former employees for a limited period of time. Frequently, however, the weeks and months become years and the independent contractors, knowing the inner workings of the organization and where projects and sponsors may be found, remain costing the company significantly more than if they had stayed on the payroll.

8. Hidden costs that are never fully accounted for such as declining morale, lost customer relationships and lost productivity due to over-stressing the remaining employees. There are very real costs associated with mass layoffs that in my experience are almost never fully assessed. Declining morale, disrupted customer relationships, a frequently steep decline in customer service and the frustration of remaining employees who cannot possibly absorb all of the responsibilities of their departed coworkers, results in an attitude of surrender to cutting corners wherever possible.

9. Future sales may be lost due to the inability to ramp up delivery quickly as the economy improves. I have already addressed at some length the labor pool shortage that may well be just around the corner. An economy spurred by the tax cut, a weakened dollar propelling export sales and/or a drop in oil and gas prices could individually or in combination cause demand in many industries to grow rapidly. Where will they find sufficient personnel fast enough to meet that demand? Any failure to respond quickly to the increased demand will result in lost sales and possibly long term market share erosion.

10. Diminished market position and status as market leader, innovator and corporate citizen. I am frequently amazed at the lengths that major corporations will go to and the investment they willingly incur during "good times" to build their image in the public's mind. However, as soon as the economy dips, the slashing begins with little thought as to the negative impact it can have within days upon years of careful work and millions of dollars invested to build that image.

When cutting is absolutely necessary, do so with a scalpel rather than meat cleaver. Across-the-board percentage staff reductions are the most damaging variety and should only be used in those instances which demand the immediate and drastic cost reductions compelled by the imminence of business failure. The use of global reductions as a general cost reduction methodology is tantamount to an abdication of responsibility by the leadership and management.

Whenever large scale reductions of any sort are made, they should be matched by reductions of a corresponding magnitude in senior executive compensation. Huge compensation packages for corporate executive leaders have been justified as necessary to attract and motivate the best talent available and as just rewards for their leading mega-corporations to unprecedented high profit levels and market valuations. This standard must also apply in the reverse and thus, significant drops in profit and worth, requiring deep cost cutting throughout the organization, should be equally reflected in deep cuts to the senior executive compensation levels.

As an alternative to layoffs and terminations, corporate leaders and managers should look to rapidly redeploy corporate assets in order to bolster revenues and profits. In the case of people assets, this can often be done through the reassignment of personnel to those areas and functions of the organization offering the greatest potential for rapid internal innovation. Such action frequently results in innovative breakthroughs of enormous and immediate value to the company as people new to a given function approach it with a fresh perspective and a different experience and personal knowledge base from which to draw upon.

Although severe cost cutting can increase the near term profitability of virtually any corporation, ultimately, the broad-based innovations of its committed and motivated employees is essential to restoring profitable long term growth, especially in periods of economic downturn. And its is sustainable growth, not temporary savings, that should be the primary goal of every corporate business leader.

Copyright 2005 by John DiFrances

John Di Frances is an internationally recognized organizational legacy expert and professional speaker. www.difrances.com


Todays News by officejax free advertising and ad exchange solutionsMORE RESOURCES updated Tue. July / 23 / 2019
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The top 10 home remedies for acne, according to dermatologists  TODAY

Wondering how to get rid of acne fast at home? Try one of these home remedies for acne recommended by dermatologists and estheticians.


5 simple home remedies for diarrhea - Medical News Today
5 simple home remedies for diarrhea  Medical News Today

Diarrhea is a common digestive problem. It can be highly uncomfortable, but many people can treat it at home using simple home remedies. Learn about them ...


7 Things you should do when you have a severe headache - PINKVILLA
7 Things you should do when you have a severe headache  PINKVILLA

Although many medications are easily available to cure the same, one can also go for natural and home remedies to combat it. Today we have rounded off some ...


High Blood Pressure & Dark Chocolate: This yummy treat can help to lower hypertension - PINKVILLA
High Blood Pressure & Dark Chocolate: This yummy treat can help to lower hypertension  PINKVILLA

High blood pressure aka hypertension is one of the common health problems prevailing in India. If left untreated then it can lead to other health issues such as ...


Hangover cures: Most effective home remedies - Medical News Today
Hangover cures: Most effective home remedies  Medical News Today

A hangover can leave someone with fatigue, nausea, and muscle aches. Many people swear by certain hangover cures, but do home remedies really help?


The best home remedies for hair growth - Medical News Today
The best home remedies for hair growth  Medical News Today

Though common to experience some hair loss with age, home remedies and treatments can help. In this article, learn about a range of home remedies for hair ...


Weight loss story: This girl lost 27 kilos by following Keto diet! Know her complete diet plan - Times of India
Weight loss story: This girl lost 27 kilos by following Keto diet! Know her complete diet plan  Times of India

From not being able to fit into the clothes of your size to facing unsolicited comments on a daily basis, the battle with extra kilos is not only phys.


Pustule: Causes, treatments, and home remedies - Medical News Today
Pustule: Causes, treatments, and home remedies  Medical News Today

Pustules are large, pus-filled pimples. In this article, we discuss the causes and symptoms of pustules. We also look at treatments and home remedies to get rid ...


5 Doctor-Approved Home Remedies for Restless Legs Syndrome - Health Essentials from Cleveland Clinic
5 Doctor-Approved Home Remedies for Restless Legs Syndrome  Health Essentials from Cleveland Clinic

When it comes to treating restless legs syndrome, anything that relieves symptoms is worth trying. Here are 5 options our sleep expert suggests.


Know What Are The Causes Of Body Swelling, Adopt these Domestic Ways - News Track English
Know What Are The Causes Of Body Swelling, Adopt these Domestic Ways  News Track English

Swelling of the body parts due to prolonged hanging of the foot or lack of movement in the body. It is often during the job where you just have to sit and work all ...


Irregular periods: What home remedies could help? - Medical News Today
Irregular periods: What home remedies could help?  Medical News Today

Certain home remedies and lifestyle changes, such as diet and exercise, can help people to regulate irregular periods. In this article, we look at home remedies ...


Are you fed up with Thin hair? treat these home remedies to get rid of it - News Track English
Are you fed up with Thin hair? treat these home remedies to get rid of it  News Track English

Who doesn't like strong and dense hair. Girls want their hair to become dark and dense, but it also affects the hair due to lifestyle changes. At present pollution ...


Home remedies: Cold remedies that work - Medical Xpress
Home remedies: Cold remedies that work  Medical Xpress

Cold remedies are almost as common as the common cold, but are they effective? Nothing can cure a cold, but there are some remedies that might help ease ...


Here are some ancient home remedies that are worth trying - Times of India
Here are some ancient home remedies that are worth trying  Times of India

No doubt there are a variety of medicines available in the market to treat different diseases. Yet when it comes to treating problems like a toothache and hiccups, ...


Debunking 6 Common Home Remedies That Aren't Worth Trying - Mental Floss
Debunking 6 Common Home Remedies That Aren't Worth Trying  Mental Floss

If you are sick or injured, the treatment isn't usually in your kitchen pantry—despite what your grandmother may have told you.


How to get rid of calluses: 7 home remedies - Medical News Today
How to get rid of calluses: 7 home remedies  Medical News Today

Calluses are hard, thick areas of skin that are often uncomfortable. They are rarely serious, and a number of simple home remedies can help reduce their ...


12 best natural remedies for eczema - Medical News Today
12 best natural remedies for eczema  Medical News Today

Many natural remedies can relieve the dry, itchy skin that eczema causes, including aloe vera, coconut oil, special baths, and essential oils. In this article, we ...


Grandma knows best! Baby home remedies from around the world - TODAY
Grandma knows best! Baby home remedies from around the world  TODAY

In every country around the globe, grandmothers have old-school home remedies to help babies and toddlers with colic, sleeplessness, teething and so much ...


Measles Treatment: 8 Home Remedies To Help You Recover - International Business Times
Measles Treatment: 8 Home Remedies To Help You Recover  International Business Times

Measles is an extremely infectious viral illness that can affect anyone. Here are some home remedies to help you should you find yourself sick with measles.


7 natural home remedies for your dog - Mother Nature Network
7 natural home remedies for your dog  Mother Nature Network

When your dog gets sick, in most cases the first thing you should do is check in with your veterinarian. Even mild symptoms could be the sign of something more ...


Note to Parents: Most 'Home Remedies' for Children's Colds Don't Work - Healthline
Note to Parents: Most 'Home Remedies' for Children's Colds Don't Work  Healthline

Survey shows at least half of parents try vitamin C, zinc, and other methods that don't have much impact on colds.


Baby constipation: Top 7 home remedies - Medical News Today
Baby constipation: Top 7 home remedies  Medical News Today

Babies rarely experience constipation, but it can occur. The first treatment for baby constipation is to try home remedies, such as taking their rectal temperature or ...


8 natural and home remedies for itching - Medical News Today
8 natural and home remedies for itching  Medical News Today

Itching can be bothersome and cause a person to lose sleep or damage their skin. In this article, learn about a variety of simple remedies to get relief from ...


Xuan Juliana Wang recalls immigrant stories in ‘Home Remedies’ - San Francisco Chronicle
Xuan Juliana Wang recalls immigrant stories in ‘Home Remedies’  San Francisco Chronicle

Author Xuan Juliana Wang tells the stories of immigrants in.


How to get rid of acne scars: Treatments and home remedies - Medical News Today
How to get rid of acne scars: Treatments and home remedies  Medical News Today

Acne scars can form as a result of moderate-to-severe acne. Many home remedies and medical treatments can help smooth the skin and reduce scarring. Learn ...


Top 10 home remedies for an itchy scalp - Medical News Today
Top 10 home remedies for an itchy scalp  Medical News Today

Whether dandruff, psoriasis, or another condition is causing an itchy scalp, various home remedies can relieve the itch. In this article, we discuss the options and ...


9 Home Remedies and Scientific Studies on Their Effects - Interesting Engineering
9 Home Remedies and Scientific Studies on Their Effects  Interesting Engineering

Not all home remedies are equal. Many remain as myths whilst some actually have scientific studies backing them.


5 home remedies for pinkeye - Medical News Today
5 home remedies for pinkeye  Medical News Today

Pinkeye, or conjunctivitis, is a common eye condition. People can relieve irritation, itchiness, and discomfort at home, using various natural remedies.


Home remedies: Self-care measures to relieve tension-type headaches - Medical Xpress
Home remedies: Self-care measures to relieve tension-type headaches  Medical Xpress

Frequent headaches can interfere with your daily life. But healthy lifestyle choices can help you head off the pain. Start with the basics, including diet, exercise ...


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